Note 13. Income Taxes

6 Months Ended

Nov. 30, 2011

Income Tax Disclosure [Text Block]

13.  INCOME TAXES

As a result of the Acquisition, the Company will have a short tax year that coincides with the Predecessor period ending August 19, 2011. As such, the income tax provision for the Predecessor period reflects the income tax results that are expected to be reported on the short period return ending August 19, 2011. For the Successor fiscal 2012 period, the Company estimated its annual effective rate based on projected taxable income for the remainder of the year, adjusting as necessary for discrete events occurring in a particular period. The effective tax rate is applied to pre-tax book income to arrive at a tax provision for the period.

The effective tax rate for the Successor quarter ended November 30, 2011 and the Predecessor quarter ended November 30, 2010 was 38.3% and 34.3%, respectively.  The effective tax rate was higher during the Successor   quarter primarily due to the utilization of foreign tax credits. The effective tax rate for the Successor fiscal 2012 period, the Predecessor fiscal 2012 period, and the Predecessor fiscal 2011 period was 38.3%, (72.6)% and 34.2%, respectively. The difference between the federal statutory rate of 35% and the effective tax rate for the 103 day period ending November 30, 2011 (the Successor fiscal 2012 period) primarily relates to foreign tax credits. The difference between the federal statutory rate and the effective tax rate for the 79 day period ending August 19, 2011 (the Predecessor fiscal 2012 period) primarily relates to the income taxes associated with the repatriation of foreign earnings in excess of foreign tax credits earned, the non-deductibility of certain transaction costs, and state income taxes.

Deferred income taxes reflect the net tax effects of: (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and income tax purposes; and (b) operating loss and credit carry-forwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. In accounting for the Acquisition, the Company recorded a deferred tax liability of approximately $291.1 million associated with acquired intangible assets that have no income tax basis. This accounts for a significant portion of our gross deferred tax liabilities of approximately $298.8 million at November 30, 2011. These liabilities are offset by a gross deferred asset of approximately $41.5 million, which consists primarily of deferred tax assets associated with net operating loss and credit carry-forwards.

In the Predecessor periods, the Company considered its investment in foreign subsidiaries to be permanently invested. Accordingly, no deferred tax liabilities were provided for on its investments in foreign subsidiaries. Subsequent to the Acquisition, the Company no longer considers itself to be permanently reinvested with respect to its accumulated and unrepatriated earnings as well as the future earnings of each foreign subsidiary. Accordingly, the Company has recorded a deferred tax liability associated with its accumulated and unrepatriated earnings through the Acquisition date and will provide for deferred taxes on future earnings of its foreign subsidiaries. The Company continues to consider its investment in each foreign subsidiary in excess of its accumulated and unrepatriated earnings to be permanently reinvested and thus has not recorded a deferred tax liability on that amount.